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Item 6. (RESERVED)

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Item 6. (RESERVED)

Delta Air Lines, Inc. | 2022 10-K 32

Item 7. MD&A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During 2022, our recovery from the impact of the COVID-19 pandemic continued and is continuing into 2023. Given the drastic and unprecedented impact of the pandemic on our operating results in 2020 and 2021, we believe that a comparison of our results in 2022 to both 2021 and 2019 in this overview section allows for a better understanding of the full impact of the COVID-19 pandemic and the progress of our recovery.

This section of Form 10-K, however, does not address certain items regarding the year ended December 31, 2020. Discussion and analysis of 2020 and year-to-year comparisons between 2021 and 2020 not included in this Form 10-K can be found in "Item 7. Management's Discussion and Analysis" of our Annual Report on Form 10-K for the year ended December 31, 2021. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and the related notes and other financial information as well as the material risk factors included elsewhere in this Annual Report on Form 10-K.

The table below shows certain key financial measures for the years ended December 31, 2022, 2021 and 2019:

Year Ended December 31,2022 vs 2021 % Increase (Decrease)2022 vs 2019 % Increase (Decrease)
(in millions)202220212019
Total operating revenue$50,582$29,899$47,00769%8%
Total operating expense46,92128,01340,38967%16%
Operating income3,6611,8866,61894%(45)%
Available seat miles ("ASM" or "capacity")233,226194,474275,37920%(15)%

2022 Financial Overview

Our 2022 operating income was $3.7 billion, an improvement of $1.8 billion compared to 2021, while operating income, adjusted (a non-GAAP financial measure) which excludes restructuring charges and other items was $3.6 billion, an increase of $6.1 billion compared to 2021. The increases in operating income and operating income, adjusted were primarily due to the continued recovery in the demand for air travel during 2022, which resulted in a 69% increase in operating revenue on a 20% increase in system capacity. Operating income in 2021 included a benefit of $4.5 billion from the recognition of payroll support program ("PSP") grants, driving the smaller year-over-year increase than operating income, adjusted, which excluded the grants benefit in 2021.

Our 2022 operating income decreased $3.0 billion compared to 2019 primarily due to an increase in operating costs, including a 35% increase in fuel cost, and lower passenger revenue due to system capacity that was 15% lower as we continued to restore our operations from the effects of the COVID-19 pandemic. Operating income, adjusted (a non-GAAP financial measure) decreased $3.1 billion compared to 2019.

Revenue. Compared to 2021, our 2022 operating revenue increased $20.7 billion, or 69%, primarily due to continued recovery in travel demand from the COVID-19 pandemic and higher refinery sales to third parties. Improvement in premium products revenue resulted from both a shift in the mix of seats on our aircraft following the retirement of certain fleets in 2020 and delivery of new aircraft since that time, as well as incremental increase in demand, particularly from leisure customers.

Compared to 2019, our operating revenue increased $3.6 billion, or 8%, due primarily to higher refinery sales to third parties, partially offset by the revenue impact from 15% lower capacity. We are planning for our 2023 system capacity to fully recover to or exceed 2019 capacity levels.

Operating Expense. Total operating expense increased $18.9 billion, or 67%, compared to 2021, primarily resulting from higher fuel costs, due to both an increase in fuel price and increased consumption as capacity was restored, as well as higher salaries and related costs, higher volume-related expenses associated with the increase in capacity and demand and an increase in expenses related to refinery sales to third parties, reflected in ancillary business and refinery expense. The increase also resulted from $4.5 billion of PSP grants recognized during 2021, which reduced expenses in that year. Total operating expense, adjusted (a non-GAAP financial measure) which excludes expenses related to refinery sales to third parties, contra-expense from the recognition of PSP grants in 2021 and other items, increased $12.8 billion, or 44%, compared to 2021.

Delta Air Lines, Inc. | 2022 10-K 33

Item 7. MD&A - Financial Highlights

Our total operating cost per available seat mile ("CASM") increased 40% to 20.12 cents compared to 2021, primarily due to the higher costs discussed above. Non-fuel unit costs ("CASM-Ex", a non-GAAP financial measure), which excludes fuel, expenses related to refinery sales to third parties, contra-expense from the recognition of PSP grants in 2021 and other items, increased 6% to 12.87 cents.

Total operating expense increased $6.5 billion, or 16%, compared to 2019, primarily resulting from higher fuel costs and an increase in expenses related to refinery sales to third parties. Total operating expense, adjusted (a non-GAAP financial measure) increased $2.0 billion, or 5% compared to 2019.

Our CASM increased 37% compared to 2019, primarily due to the higher costs discussed above and a 15% decrease in capacity. CASM-Ex (a non-GAAP financial measure) increased 18% compared to 2019.

During 2023, we expect non-fuel unit costs to decrease compared to 2022 as we restore our network to pre-pandemic levels, better utilizing our assets. We expect to reduce our investments in rebuilding the network as we progress through the year while improving our operational efficiency and managing inflationary pressures including labor cost increases.

Non-Operating Results. Total non-operating expense was $1.7 billion in 2022, $259 million higher than 2021 primarily due to higher mark-to-market losses on certain of our equity investments, partially offset by reduced losses on our equity method investments, lower interest expense as a result of our debt reduction initiatives and lower losses on extinguishment of debt.

Total non-operating expense was $1.3 billion higher than 2019, primarily due to higher mark-to-market losses on certain of our equity investments and higher interest expense as a result of our increased debt balances due to the financing arrangements entered into during 2020.

Cash Flow. During 2022, operating activities provided cash flows of $6.4 billion, primarily on improving ticket sales, and incurred approximately $6.9 billion of net investing cash outflows, primarily for $6.4 billion of capital expenditures. After adjusting for strategic investments and certain other activities, these results generated $244 million of free cash flow (a non-GAAP financial measure) in 2022.

Also, during 2022 we had cash outflows of approximately $4.5 billion related to repayments of our debt and finance leases, including approximately $2.3 billion for early repayments and the remainder from scheduled maturities. Our cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities ("liquidity") at December 31, 2022 was $9.4 billion.

The non-GAAP financial measures operating income, adjusted, operating expense, adjusted, CASM-Ex and free cash flow used above are defined and reconciled in "Supplemental Information" below.

Delta Air Lines, Inc. | 2022 10-K 34

Item 7. MD&A - Results of Operations

Results of Operations

Operating Revenue

Year Ended December 31,Increase (Decrease)% Increase (Decrease)
(in millions) (1)20222021
Ticket - Main cabin$20,396$11,393$9,00379%
Ticket - Premium products15,2307,9467,28492%
Loyalty travel awards2,8981,7861,11262%
Travel-related services1,6941,39430022%
Total passenger revenue$40,218$22,519$17,69979%
Cargo1,0501,032182%
Other9,3146,3482,96647%
Total operating revenue$50,582$29,899$20,68369%
TRASM (cents)21.69¢15.37¢6.32¢41%
Third-party refinery sales (2)(2.13)(1.66)(0.47)28%
TRASM, adjusted (cents)19.55¢13.71¢5.84¢43%

(1)Total amounts in the table above may not calculate exactly due to rounding.

(2)For additional information on adjustments to TRASM, see "Supplemental Information" below.

Operating Revenue

Our operating revenue increased $20.7 billion, or 69%, compared to the year ended December 31, 2021 due primarily to increased demand in 2022 as a result of the continued recovery from the COVID-19 pandemic and higher third-party refinery sales. The increase in operating revenue, on a 20% increase in system capacity, generated a 41% increase in total revenue per available seat mile ("TRASM") and a 43% increase in TRASM, adjusted (a non-GAAP financial measure) compared to 2021.

See "Refinery Segment" below for additional details on the refinery's operations, including third-party refinery sales recorded in other revenue, during each period.

Passenger Revenue by Geographic Region

Increase (Decrease) vs. Year Ended December 31, 2021
(in millions)Year Ended December 31, 2022Passenger RevenueRPMs (Traffic)ASMs (Capacity)Passenger Mile YieldPRASMLoad Factor
Domestic$30,19764%27%10%29%48%11pts
Atlantic6,093243%194%110%17%63%23pts
Latin America2,88954%24%(5)%25%62%19pts
Pacific1,039159%211%8%(17)%139%44pts
Total passenger revenue$40,21879%45%20%23%49%15pts

Domestic

Domestic passenger unit revenue ("PRASM") for the year ended December 31, 2022 increased 48% compared to the year ended December 31, 2021 as a result of stronger demand and higher levels of traffic due to the ongoing recovery from the COVID-19 pandemic throughout 2022.

Domestic revenue in 2022 was above 2021 levels and near pre-pandemic levels, even though capacity was not fully restored, as consumers continue to return to travel. We believe spending patterns for services are returning to historical levels compared to spending on goods. We also experienced higher growth in premium product revenue (including Delta One, First Class, Delta Premium Select and Delta Comfort+) compared to main cabin with the delivery of new aircraft that include more premium seat capacity and an increase in premium product yield compared to main cabin, as we see more consumers choosing these premium offerings. In 2023, we expect domestic capacity to be restored to pre-pandemic levels through growth in our core hubs in Atlanta, Minneapolis-St. Paul, Detroit and Salt Lake City.

Delta Air Lines, Inc. | 2022 10-K 35

Item 7. MD&A - Results of Operations

International

International passenger revenue for the year ended December 31, 2022 increased 147% with capacity up 47% compared to the year ended December 31, 2021, with the Atlantic region experiencing the most significant improvement, as travel to many European destinations resumed or increased.

In November 2021, travel restrictions on most fully vaccinated foreign visitors to the United States were lifted. This action made travel to the U.S. by many foreign nationals possible for the first time in 18 months. Further, in June 2022, the United States lifted its testing requirement for international travel. Both of these changes have had a positive impact on international demand. Most countries in our network have removed or eased travel restrictions, resulting in revenue improvement across all international regions.

The Atlantic region showed strong demand improvement during 2022 as western European countries removed or eased travel restrictions in the first half of 2022. Revenue in this region was near pre-pandemic levels as travelers continue to show increased desire for transatlantic travel. This has been led by demand for leisure destinations such as Italy, Spain and Greece and improving business demand.

Latin America region revenue was also near pre-pandemic levels during 2022, due to continued strong demand for leisure destinations in Mexico, the Caribbean and Central America. Also, in 2022, final regulatory approval was granted for our trans-American joint venture agreement with LATAM. This agreement combines our highly complementary route networks between North and South America, with the goal of providing customers with a seamless travel experience and industry-leading connectivity. Beginning in the December 2022 quarter, we and LATAM began adding capacity on certain Latin America routes and introduced one new route between Los Angeles and São Paulo, Brazil.

The Pacific region continues to be the most impacted by travel restrictions, although we experienced demand improvement during 2022 following South Korea and Australia reopening to international travelers and the recent easing of travel restrictions to Japan. Throughout 2022, China still maintained international testing requirements and travel restrictions, which continued to restrain demand in the Pacific region.

We expect the increasing revenue trends in all international regions to continue into 2023 as demand for international locations continues to be strong and countries continue to reopen and remove or ease remaining travel restrictions. For example, in January 2023 China ended most of its pandemic-related travel restrictions and we expect to increase capacity based on demand during 2023.

Ticket Validity Flexibility

In order to provide our customers more flexibility and time to plan their travel, travel credit holders as of January 2022 and customers who purchased a ticket in 2022 are able to rebook their ticket through December 31, 2023 for travel throughout 2024.

Delta has eliminated change fees for tickets originating in the United States, Canada, Europe and Africa (excluding Basic Economy tickets). A change fee waiver continues to apply for travel originating in Asia and the Pacific. Starting in 2022, Basic Economy tickets may be cancelled for a charge to receive a partial ticket credit.

We estimate the value of ticket breakage and recognize revenue at the scheduled flight date. Our ticket breakage estimates are primarily based on historical experience, ticket contract terms and customers’ travel behavior. Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the elimination of change fees for most tickets, our estimates of revenue that will be recognized from the air traffic liability for unused tickets may vary in future periods.

See Note 2 of the Notes to the Consolidated Financial Statements for additional information about passenger ticket sales.

Delta Air Lines, Inc. | 2022 10-K 36

Item 7. MD&A - Results of Operations

Other Revenue

Year Ended December 31,Increase (Decrease)% Increase (Decrease)
(in millions)20222021
Refinery$4,977$3,229$1,74854%
Loyalty program2,5971,77082747%
Ancillary businesses846793537%
Miscellaneous89455633861%
Total other revenue$9,314$6,348$2,96647%

Refinery. This represents refinery sales to third parties. These sales increased $1.7 billion compared to 2021. The increase in third-party refinery sales resulted from higher pricing and production during 2022 compared to 2021. See "Refinery Segment" below for additional details on the refinery's operations, including third-party refinery sales recorded in other revenue, during each period.

Loyalty Program. This relates to brand usage by third parties and other performance obligations embedded in miles sold, including redemption of miles for non-travel awards. These revenues are mainly driven by customer spend on American Express cards and new cardholder acquisitions. On continued strength in co-brand card spend and card acquisitions, revenues from our relationship with American Express increased in 2022 compared to 2021.

Ancillary Businesses. This includes aircraft maintenance services we provide to third parties and our vacation wholesale operations.

Miscellaneous. This is primarily composed of lounge access, including access provided to certain American Express cardholders, and codeshare revenues. Compared to 2021, these transactions have increased due to the ongoing recovery of our business that continued to materialize in 2022. Our network of Delta Sky Club lounges was fully reopened by the end of July 2021 after some lounges temporarily closed at the onset of the pandemic in 2020.

Delta Air Lines, Inc. | 2022 10-K 37

Item 7. MD&A - Results of Operations

Operating Expense

Year Ended December 31,Increase (Decrease)% Increase (Decrease)
(in millions)20222021
Salaries and related costs$11,902$9,728$2,17422%
Aircraft fuel and related taxes11,4825,6335,849104%
Ancillary businesses and refinery5,7563,9571,79945%
Contracted services3,3452,42092538%
Landing fees and other rents2,1812,0191628%
Depreciation and amortization2,1071,9981095%
Regional carrier expense2,0511,73631518%
Aircraft maintenance materials and outside repairs1,9821,40158141%
Passenger commissions and other selling expenses1,89195393898%
Passenger service1,45375669792%
Profit sharing563108455421%
Aircraft rent5084307818%
Restructuring charges(124)(19)(105)553%
Government grant recognition—(4,512)4,512(100)%
Other1,8241,40541930%
Total operating expense$46,921$28,013$18,90867%

During 2021, travel demand began to recover from the low levels experienced during the height of the COVID-19 pandemic. This recovery in demand continued to accelerate during 2022. As a result, operating expenses increased in conjunction with the increases in demand and capacity discussed above. The continued restoration of our operations was the primary driver for the increases in most operating expense line items, particularly contracted services, aircraft maintenance materials and outside repairs, passenger commissions and other selling expenses and passenger service. Other year-over-year fluctuations are discussed below.

Salaries and Related Costs. We hired approximately 25,000 employees during 2022 principally in flight operations, in-flight service, reservations and customer care, TechOps and airport customer service, in order to support our operations as demand and capacity returned. These hiring actions and a 4% base pay increase effective May 1, 2022 for eligible employees resulted in the increase in salaries and related costs in 2022 compared to 2021. The increase also results from the ending of the voluntary unpaid leave of absence program we offered in response to the COVID-19 pandemic during 2021. During 2022, we no longer offered these leaves of absence as the program terminated in September 2021. In early 2023, we announced a 5% base pay increase for eligible employees effective April 1, 2023.

Delta and ALPA reached an Agreement in Principle on a new collective bargaining agreement in December 2022. In January 2023, a tentative agreement was ratified by ALPA’s Delta Master Executive Council ("MEC") and is subject to ratification by Delta’s pilots through a vote that is scheduled to close on March 1, 2023. In addition to various work rule changes and an 18% pay rate increase in 2023, the tentative agreement includes a provision for a one-time payment of approximately $700 million upon pilot ratification. As voting on the tentative agreement has not closed and there is significant uncertainty about the outcome of this process, we have not accrued for this one-time payment as of December 31, 2022.

Delta Air Lines, Inc. | 2022 10-K 38

Item 7. MD&A - Results of Operations

Aircraft Fuel and Related Taxes. Fuel expense increased $5.8 billion compared to 2021 primarily due to a 78% increase in the market price of jet fuel and a 23% increase in consumption as capacity was restored.

Additionally, during 2022, we purchased and retired $116 million of carbon offsets which relate to a portion of our airline segment's 2021 and March 2022 quarter carbon emissions. During 2021, we purchased and retired $95 million of carbon offsets, which related to a portion of our airline segment's 2020 and 2021 carbon emissions. In the table below, these costs are shown in the carbon offset costs line item. As we continue to work on accelerating our long-term, net-zero greenhouse gas emissions goal, our vision of the path forward will require multiple initiatives, centered on a long-term strategy of decarbonization; we therefore expect substantially all of our investment going forward will be focused on solutions other than carbon offsets.

Fuel expense and average price per gallon
Average Price Per Gallon
Year Ended December 31,Increase (Decrease)Year Ended December 31,Increase (Decrease)
(in millions, except per gallon data)2022202120222021
Fuel purchase cost (1)$12,114$5,527$6,587$3.55$1.99$1.56
Carbon offset costs11695210.030.03—
Fuel hedge impact299200.01—0.01
Refinery segment impact(777)2(779)(0.23)—(0.23)
Total fuel expense$11,482$5,633$5,849$3.36$2.02$1.34

(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.

Ancillary Businesses and Refinery. Ancillary businesses and refinery includes expenses associated with refinery sales to third parties, aircraft maintenance services we provide to third parties and our vacation wholesale operations. Increased expenses were primarily related to refinery sales to third parties, which increased $1.7 billion compared to 2021. The increase compared to 2021 was driven by higher pricing and production during 2022. The cost of aircraft maintenance services we provide to third parties increased compared to 2021 due to the increase in flights and aircraft operated during 2022.

Regional Carrier Expense. Regional carrier expense increased compared to 2021 due to an increase in contract carrier rates and wages, while capacity was constrained due to a shortage of regional jet pilots.

Restructuring Charges. During 2020, we recorded restructuring charges of $8.2 billion for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic. In the years ended December 31, 2022 and 2021, we recognized $124 million and $19 million, respectively, of adjustments to certain of those restructuring charges, representing changes in our estimates or the outcome of contract negotiations. See Note 15 of the Notes to the Consolidated Financial Statements for additional information about the restructuring charges recorded in 2020.

Profit Sharing. Profit sharing increased by $455 million during 2022 due to higher profit during the year. Our profit sharing program pays 10% to all eligible employees for the first $2.5 billion of annual profit, as defined by the terms of the program, and 20% of annual profit above $2.5 billion. For the year ended December 31, 2021, we recorded a special profit sharing expense of $108 million, based on the adjusted pre-tax profit earned during the second half of the year, to recognize the extraordinary efforts of our employees through the pandemic.

Government Grant Recognition. During the year ended December 31, 2021, we received a total of $6.4 billion under PSP agreements with the U.S. Department of the Treasury, which we were required to use exclusively for the payment of employee wages, salaries and benefits. The support payments included grants totaling $4.5 billion that were recognized as contra-expense in 2021 over the period that the funds were used.

Delta Air Lines, Inc. | 2022 10-K 39

Item 7. MD&A - Non-Operating Results

Non-Operating Results

Year Ended December 31,Favorable (Unfavorable)
(in millions)20222021
Interest expense, net$(1,029)$(1,279)$250
Impairments and equity method results(20)(337)317
Gain/(loss) on investments, net(783)56(839)
Loss on extinguishment of debt(100)(319)219
Pension and related benefit292451(159)
Miscellaneous, net(107)(60)(47)
Total non-operating expense, net$(1,747)$(1,488)$(259)

Interest expense, net. Interest expense, net includes interest expense and interest income. This decreased as compared to 2021 as a result of our debt reduction initiatives during 2021 and 2022. See Note 6 of the Notes to the Consolidated Financial Statements for additional information on our debt reduction initiatives. We are reducing the total amount of interest expense by pre-paying our debt in addition to periodic amortization payments and scheduled maturities. During 2021, we made payments of approximately $5.8 billion related to our debt and finance leases, which included approximately $3.8 billion for early repayments. We have continued to pay down our debt during 2022 with $4.5 billion of payments on debt and finance lease obligations, including early repayment activities of $1.5 billion of certain notes through a cash tender offer in the September 2022 quarter and $778 million in principal for the early repurchase of various secured and unsecured notes through repurchases on the open market. We will continue to seek opportunities to pre-pay our debt, in addition to periodic amortization payments and scheduled maturities, during 2023 and beyond.

Impairments and equity method results. Equity method results in 2022 consist of our share of Aeroméxico's net results and in 2021 reflected our share of Virgin Atlantic's net results. See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our equity investments.

Gain/(loss) on investments, net. See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our equity investments measured at fair value on a recurring basis.

Loss on extinguishment of debt. Loss on extinguishment of debt reflects the losses incurred in the early repayment of debt referenced above. See Note 6 of the Notes to the Consolidated Financial Statements for additional information on the early repayment of debt.

Pension and related benefit. Pension and related benefit reflects the net periodic benefit/(cost) of our pension and other postretirement and postemployment benefit plans. Based on our funded status as of December 31, 2021, we modified the strategic asset allocation mix in 2022 to reduce the investment risk of the portfolio. Based on the portfolio's risk profile, we lowered the weighted average expected long-term rate of return on our defined benefit pension plan assets for 2022 net periodic benefit cost to 7.00%. See Note 9 of the Notes to the Consolidated Financial Statements for additional information on our employee benefit plans.

Miscellaneous, net. Miscellaneous, net primarily includes charitable contributions and foreign exchange gains/(losses).

Delta Air Lines, Inc. | 2022 10-K 40

Item 7. MD&A - Income Taxes

Income Taxes

Our effective tax rate for 2022 was 31%. We expect our annual effective tax rate to be between 23% and 26% for 2023. Our effective tax rate in 2022 was impacted by mark-to-market adjustments on our equity investments which are considered capital assets for tax purposes. As of December 31, 2022, we had approximately $5.4 billion of U.S. federal pre-tax net operating loss carryforwards, of which $1.5 billion was generated prior to 2018 and will not begin to expire until 2029. Under current tax law, the remaining net operating loss carryforwards do not expire.

The Inflation Reduction Act ("IRA") was enacted into law on August 16, 2022. Included in the IRA was a provision to implement a 15% corporate alternative minimum tax on corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds $1.0 billion. This provision is effective for tax years beginning after December 31, 2022. We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a material impact on our reported results, cash flows or financial position.

For more information about our income taxes, see Note 11 of the Notes to the Consolidated Financial Statements.

Refinery Segment

The refinery operated by our wholly owned subsidiary Monroe primarily produces gasoline, diesel and jet fuel. Monroe has agreements in place to exchange the non-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations. The jet fuel produced and procured through exchanging gasoline and diesel fuel produced by the refinery provided approximately 200,000 barrels per day, or approximately 75% of our pre-COVID-19 pandemic consumption, for use in our airline operations.

Refinery segment financial information
Year Ended December 31,
(in millions, except per gallon data)20222021% Increase (Decrease) (1)
Exchange products$3,475$2,29352%
Sales of refined products27840595%
Sales to airline segment1,976492302%
Third-party refinery sales4,9773,22954%
Operating revenue$10,706$6,05477%
Operating income (loss)$777$(2)NM
Refinery segment impact on average price per fuel gallon$(0.23)$—NM

(1)Certain variances are labeled as not meaningful ("NM").

Refinery revenues increased from $6.1 billion in 2021 to $10.7 billion in 2022, primarily driven by the increase in third-party refinery sales and sales to the airline segment. The increase in third-party refinery sales resulted from higher pricing and production during 2022 compared to 2021. The refinery recorded an operating loss of $2 million in 2021 compared to operating income of $777 million in 2022 mainly due to the increased production and pricing, partially offset by higher Renewable Identification Numbers ("RINs") compliance costs discussed below.

A refinery is subject to annual Environmental Protection Agency ("EPA") requirements to blend renewable fuels into the gasoline and on-road diesel fuel it produces. Alternatively, a refinery may purchase RINs from third parties in the secondary market. The Monroe refinery purchases the majority of its RINs in the secondary market. Monroe incurred $576 million in RINs compliance costs during 2022, compared to $422 million incurred in 2021. Observable RINs prices increased through the first half of 2022 and remained at these higher rates through the second half of the year.

At December 31, 2022, we had a net fair value obligation related to RINs of $226 million. Our obligation as of December 31, 2022 was calculated using the U.S. EPA Renewable Fuel Standard ("RFS") volume requirements, which were finalized in the June 2022 quarter. During the December 2022 quarter, we retired our 2020 RINs assets to settle our 2020 obligations prior to the compliance deadline. We expect to settle our 2021 and 2022 obligations in the first half of 2023.

For more information regarding the refinery's results, see Note 14 of the Notes to the Consolidated Financial Statements.

Delta Air Lines, Inc. | 2022 10-K 41

Item 7. MD&A - Operating Statistics

Operating Statistics

Year Ended December 31,
Consolidated (1)202220212019
Revenue passenger miles (in millions)195,480134,692237,680
Available seat miles (in millions)233,226194,474275,379
Passenger mile yield20.57¢16.72¢17.79¢
Passenger revenue per available seat mile ("PRASM")17.24¢11.58¢15.35¢
Total revenue per available seat mile ("TRASM")21.69¢15.37¢17.07¢
TRASM, adjusted (2)19.55¢13.71¢16.97¢
Cost per available seat mile ("CASM")20.12¢14.40¢14.67¢
CASM-Ex (2)12.87¢12.12¢10.88¢
Passenger load factor84%69%86%
Fuel gallons consumed (in millions)3,4122,7784,214
Average price per fuel gallon (3)$3.36$2.02$2.02
Average price per fuel gallon, adjusted (2)(3)$3.36$2.02$2.01
Approximate full-time equivalent employees, end of period95,00083,00091,000

(1)Includes the operations of our regional carriers under capacity purchase agreements. Full-time equivalent employees exclude employees of regional carriers that we do not own.

(2)Non-GAAP financial measures are defined and reconciled to TRASM, CASM and average fuel price per gallon, respectively, in "Supplemental Information" below.

(3)Includes the impact of refinery segment results, carbon offset costs and fuel hedge activity.

Delta Air Lines, Inc. | 2022 10-K 42

Item 7. MD&A - Financial Condition and Liquidity

Financial Condition and Liquidity

As of December 31, 2022, we had $9.4 billion in cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities ("liquidity"). We expect to meet our liquidity needs for the next twelve months with cash and cash equivalents, short-term investments, restricted cash equivalents and cash flows from operations. We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.

Sources and Uses of Liquidity

Operating Activities

Operating activities in 2022 provided $6.4 billion of cash flow compared to $3.3 billion in 2021. Operating activities in 2021 included $4.5 billion in funds received from payroll support program grants. We expect to continue generating positive cash flows from operations during 2023.

Our operating cash flow is impacted by the following factors:

Seasonality of Advance Ticket Sales. We sell tickets for air travel in advance of the customer's travel date. When we receive a cash payment at the time of sale, we record the cash received on advance sales as deferred revenue in air traffic liability. The air traffic liability typically increases during the winter and spring months as advanced ticket sales grow prior to the summer peak travel season and decreases during the summer and fall months.

Beginning with the COVID-19 pandemic in the March 2020 quarter through 2021, reduced demand for air travel resulted in a lower level of advance bookings and the associated cash received than we had historically experienced, which had been impacting the typical seasonal trend of air traffic liability. However, demand improved during 2022 as consumers regained confidence to travel and increased ticket purchases for travel further in advance. As a result, air traffic liability began returning to the usual seasonal trend in 2022.

Fuel. Fuel expense represented approximately 24% of our total operating expense during 2022. The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations. The average fuel price per gallon increased substantially in 2022. While prices have recently moderated, we expect elevated jet fuel prices in comparison to historical levels to continue during the beginning of 2023 due to current market conditions, further exacerbated by geopolitical events. As capacity and demand increased throughout the year, fuel consumption was higher in 2022 than 2021 as well. We expect that fuel consumption will continue to increase throughout 2023 as we return to pre-pandemic levels of capacity, partially offset by increases in the fuel efficiency of our fleet.

We expect our commitment to environmental sustainability to depend on increased use of SAF, which is not presently available at scale or at prices competitive to jet fuel. While we do not expect a material adverse effect on our Consolidated Financial Statements in the near-term from the use of SAF, we are unable to predict the financial impact of increased use of SAF on our Consolidated Financial Statements over the longer term as government policies and incentives for, and sufficient third-party investment in, SAF are necessary to make its use in larger quantities commercially and economically feasible.

Employee Benefit Obligations. We sponsor defined benefit pension plans for eligible employees and retirees. These plans are closed to new entrants and are frozen for future benefit accruals. Our funding obligations for these plans are governed by the Employee Retirement Income Security Act ("ERISA") and any applicable legislation. We had no minimum funding requirements in 2021 or 2022, and have no such requirements in 2023. However, we voluntarily contributed $1.5 billion to these plans during 2021. At this level of funding, investment returns are expected to satisfy future benefit payments, which we believe would eliminate further material voluntary or required cash contributions to the plans under the terms of ERISA. Further, based on this level of funding, we have modified, and continue to evaluate, the asset allocation mix to reduce the investment risk of the portfolio. Estimates of future funding requirements are based on various assumptions and could vary materially from actual funding requirements. Assumptions include, among other things, the actual and projected market performance of assets, statutory requirements and demographic data for participants.

In addition, we have employee benefit obligations relating primarily to projected future benefit payments from our unfunded postretirement and postemployment plans. See Note 9 of the Notes to the Consolidated Financial Statements for more information on our employee benefit obligations.

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Item 7. MD&A - Financial Condition and Liquidity

Voluntary Separation Programs. In 2020, we recorded a $3.4 billion charge associated with voluntary early retirement and separation programs and other employee benefit charges. Approximately $440 million, $575 million and $720 million was disbursed in cash payments to participants in the voluntary programs during 2022, 2021 and 2020 respectively. We anticipate that a total of approximately $300 million in cash payments will be made to participants in the voluntary separation programs in 2023 and the remaining payments in 2024 and beyond.

Profit Sharing. Our broad-based employee profit sharing program provides that, for each year in which we have an annual pre-tax profit, as defined by the terms of the program, we will pay a specified portion of that profit to employees. In determining the amount of profit sharing, the program defines profit as pre-tax profit adjusted for profit sharing and certain other items.

We pay profit sharing annually in February. To recognize the extraordinary efforts of our employees through the pandemic, we made a special profit-sharing payment of $108 million to eligible employees in February 2022, based on the adjusted pre-tax profit earned during the second half of 2021. During the year ended December 31, 2022, we recorded $563 million in profit sharing expense based on 2022 pre-tax profit, which we will pay to employees in February 2023.

Contract Carrier Obligations. We have certain estimated minimum fixed obligations under capacity purchase agreements with third-party regional carriers. These minimum amounts are based on the required minimum levels of flying by the regional carriers under the respective agreements and assumptions regarding the costs associated with such minimum levels of flying. As of December 31, 2022 the total of these minimum amounts was $10.6 billion and are approximately $1.6 billion on an annual basis over the next five years. See Note 10 of the Notes to the Consolidated Financial Statements for more information on our contract carrier obligations.

Operating Lease Obligations. As described further in Note 7 of the Notes to the Consolidated Financial Statements, as of December 31, 2022 we had a total of $9.8 billion of minimum operating lease obligations. These minimum lease payments range from approximately $800 million to $1.0 billion on an annual basis over the next five years.

New York-JFK Airport Expansion. We are enhancing and expanding our facilities at Terminal 4 of JFK to strengthen our competitive position and offer a premium travel experience for customers in New York City. Terminal 4 is operated by JFK International Air Terminal LLC ("IAT"), a private party, under its lease with the Port Authority of New York and New Jersey ("Port Authority"). We have a long-term agreement with IAT to sublease space in Terminal 4 through 2043 ("Sublease").

In 2021, the Port Authority approved plans to renovate and expand Terminal 4 in order to facilitate Delta's relocation from Terminal 2 and consolidation of its operations into Terminal 4. The project will add 10 new gates and other complementary facilities, including an additional Delta Sky Club and a new Delta One lounge. The project is estimated to cost approximately $1.6 billion and will be funded primarily with bonds issued in 2022 by the New York Transportation Development Corporation ("NYTDC") for which our landlord, IAT, is the obligor. The majority of project costs are being used to expand or modify Delta's leased premises. Construction started in late 2021 and Delta's portion of the project is estimated to be complete by early 2024.

In 2022, we amended our Sublease to provide for the expansion project, including the adjustment of our subleased space and rentals. We have recognized a right-of-use ("ROU") asset and lease liability representing the fixed component of the lease payments for this facility and as the majority of the project either expands or modifies Delta’s leased premises, our lease liability will increase upon completion. As of December 31, 2022, our lease liability related to this Sublease was $2.3 billion. See Note 7 of the Notes to the Consolidated Financial Statements for more information on our ROU assets and lease liabilities.

Other Obligations. We have certain purchase obligations under which we are required to make minimum payments for goods and services, including, but not limited to, aviation-related, maintenance, insurance, marketing, technology, sponsorships and other third-party services and products. As of December 31, 2022, we had approximately $8.6 billion of such obligations, which range from approximately $350 million to $900 million on an annual basis over the next five years.

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Item 7. MD&A - Financial Condition and Liquidity

Investing Activities

Short-Term Investments. In 2022 we redeemed a net of $100 million in short-term investments. See Note 1 and Note 3 of the Notes to the Consolidated Financial Statements for further information on these investments.

Capital Expenditures. Our capital expenditures (i.e., property and equipment additions in our Consolidated Statements of Cash Flows ("cash flows statement")) were $6.4 billion and $3.2 billion in 2022 and 2021, respectively. Our capital expenditures are primarily related to the purchases of aircraft, airport construction projects, fleet modifications and technology enhancements.

We have committed to future aircraft purchases and have obtained, but are under no obligation to use, long-term financing commitments for a substantial portion of the purchase price of the aircraft. Excluding the New York-LaGuardia airport project discussed below, our expected 2023 capital spend of approximately $5.5 billion, which may vary depending on financing decisions, will be primarily for aircraft, including deliveries and advance deposit payments, as well as fleet modifications and technology enhancements. As described in Part I, Item 1. "Business - Environmental Sustainability," aircraft fleet renewal is an important component of our environmental sustainability strategy and the path to achievement of our ambitious climate goals, which will continue to require extensive capital investment in future periods. See Note 10 of the Notes to the Consolidated Financial Statements for additional information regarding our aircraft purchase commitments, which totaled approximately $19.0 billion as of December 31, 2022.

New York-LaGuardia Redevelopment. As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority to replace Terminals C and D with a new state-of-the-art terminal facility consisting of 37 gates across four concourses connected to a central headhouse. The terminal will feature a new, larger Delta Sky Club, wider concourses, more gate seating and nearly double the amount of concessions space than the existing terminals. The facility will also offer direct access between the parking garage and terminal and improved roadways and drop-off/pick-up areas. Construction is underway and is being phased to limit passenger inconvenience. Due to an acceleration effort that commenced in 2020, completion is expected by 2025.

In 2019, we opened Concourse G, the first of four new concourses, housing seven of the 37 new gates. In 2022, we achieved a significant milestone by opening the headhouse (including the Delta Sky Club), the terminal roadways and Concourse E - the second of four new concourses to be built. Additionally, we opened four of 12 planned new gates on Concourse F.

In connection with the redevelopment, during 2017, we entered into an amended and restated terminal lease with the Port Authority with a term through 2050. Pursuant to the lease agreement, as amended to date, we will (1) fund (through debt issuance and existing cash) and undertake the design, management and construction of the terminal and certain off-premises supporting facilities, (2) receive a Port Authority contribution of approximately $500 million to facilitate construction of the terminal and other supporting infrastructure, (3) be responsible for all operations and maintenance during the term of the lease and (4) have preferential rights to all gates in the terminal subject to Port Authority requirements with respect to accommodation of designated carriers.

The project is expected to cost $4.3 billion. We currently expect our net project cost to be approximately $3.8 billion and we bear the risks of project construction, including any potential cost over-runs. We entered into loan agreements to fund a portion of the construction, which are recorded on our Consolidated Balance Sheets ("balance sheets") as debt with the proceeds reflected as restricted cash. Using funding primarily provided by these arrangements, we spent approximately $650 million, $950 million and $600 million during 2022, 2021 and 2020, respectively, bringing the total amount spent on the project to date to approximately $3.2 billion. We expect to spend approximately $500 million during 2023.

Los Angeles International Airport ("LAX") Construction. As part of the terminal redevelopment project at LAX, we are modernizing, upgrading, and providing post-security connection to Terminals 2 and 3. We announced this project and executed a modified lease agreement during 2016 with the City of Los Angeles (the "City"), which owns and operates LAX. This project includes a new centralized ticketing and arrival hall, a new security checkpoint, core infrastructure to support the City's planned airport people mover, ramp improvements and a post-security connector to the north side of the Tom Bradley International Terminal.

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Item 7. MD&A - Financial Condition and Liquidity

The project is expected to cost approximately $2.4 billion. A substantial majority of the project costs are being funded through the Regional Airports Improvement Corporation ("RAIC"), a California public benefit corporation, using a revolving credit facility provided by a group of lenders. The credit facility was executed in 2017 and we have guaranteed the obligations of the RAIC under the credit facility. The revolving credit facility agreement was most recently amended in January 2023, decreasing the revolver capacity from $800 million to $700 million. Loans made under the credit facility are being repaid with the proceeds from the City’s purchase of completed project assets. Under the lease agreement and subsequent project component approvals by the City's Board of Airport Commissioners, the City has appropriated to date approximately $1.8 billion to purchase completed project assets, representing the maximum allowable reimbursement by the City. Costs incurred in excess of the $1.8 billion maximum will not be reimbursed by the City. We currently expect our net project costs to be approximately $600 million, of which approximately $350 million has been reflected as investing activities in our cash flows statement since the project started in 2017.

Given reduced passenger volumes resulting from the COVID-19 pandemic, we accelerated the construction schedule for this project in 2020. Additionally, we enhanced the project’s scope to include a more customer-friendly design of Terminal 3, an expanded Delta Sky Club and baggage system upgrades designed to increase the terminals’ operational efficiency going forward. In 2022, we opened a new consolidated headhouse for both terminals, which includes ticketing, security, baggage claim and a new Delta Sky Club lounge and have a total of 11 of 14 planned new gates now open in Terminal 3. Construction is expected to be completed in 2023.

Equity Investments. To support our international presence, during 2022 we invested an aggregate amount of $757 million in Grupo Aeroméxico and LATAM as each carrier emerged from restructuring processes. Upon completion of their respective processes, we received a 20% equity stake in Grupo Aeroméxico and a 10% equity stake in LATAM. See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our equity investments

Financing Activities

Debt and Finance Leases. In 2022, we had cash outflows of approximately $4.5 billion related to repayments of our debt and finance leases, including approximately $2.3 billion for the early repayment of certain notes through a cash tender offer and other various secured and unsecured notes. We will continue to seek opportunities to pre-pay our debt, in addition to periodic amortization payments and scheduled maturities, during 2023 and beyond. See Note 6 of the Notes to the Consolidated Financial Statements for additional information on recent repayment activity.

The principal amount of our debt and finance leases was $23.2 billion at December 31, 2022.

Future Debt Obligations. As described further in Note 6 of the Notes to the Consolidated Financial Statements, as of December 31, 2022, scheduled maturities of our debt in 2023 and 2024 were $2.1 billion and $2.8 billion, respectively, with maturities from 2025 through 2027 ranging between $2.5 billion and $2.9 billion annually. As of December 31, 2022, scheduled maturities after 2027 aggregate to $8.4 billion. In addition, we are obligated to make periodic interest payments at fixed and variable rates, depending on the terms of the applicable debt agreements. Based on applicable interest rates and scheduled debt maturities as of December 31, 2022, these interest obligations total approximately $4.6 billion and range from approximately $350 million to $1.0 billion on an annual basis over the next five years. In addition to payment of scheduled debt maturities, we expect to continue paying down our debt in 2023, and therefore reduce our future interest obligations.

Finance Lease Obligations. As described further in Note 7 of the Notes to the Consolidated Financial Statements, as of December 31, 2022 we had a total of $1.8 billion of minimum finance lease obligations. These minimum lease payments range from approximately $200 million to $400 million on an annual basis over the next five years.

Undrawn Lines of Credit. As of December 31, 2022 we had approximately $2.9 billion undrawn and available under our revolving credit facilities. In addition, we had $400 million of outstanding letters of credit as of December 31, 2022 that did not affect the availability under our revolvers.

Covenants. We were in compliance with the covenants in our debt agreements at December 31, 2022. See Note 6 of the Notes to the Consolidated Financial Statements for more information on the covenants in our debt agreements.

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